Sebastiaan Verhaar is the CEO of Sana Commerce, a ready-to-use commerce platform engineered for B2B.
In 2019, how many of us genuinely believed there was any likelihood of the entire world being shut down due to a pandemic? It seemed unfathomable, unimaginable—a “black swan” event. Black swan events, like the global pandemic, are highly improbable and unexpected events that, when they occur, cause severe consequences that reshape the status quo.
In 2008, many experts famously wrote off anxiety that mortgage-backed securities could collapse. The aftermath? A global recession that reshaped the economy for a generation.
Businesses thrive during stability and predictability. Chaos brings uncertainty that businesses loathe: What will my profits look like? Will my deliveries arrive on time? Can I even open my doors to customers? Black swan events cause nothing but chaos, so the warnings of impending black swan events are all too easy to write off. The reality is that the world is chaotic. Black swan events may not be completely predictable, but we can predict that volatility can and will happen.
And businesses must prepare for volatility through agility and planning.
‘Just in time’ led to ‘just out of luck.’
Prior to the 2020 pandemic, “just-in-time” logistics dominated the global economy. This ultra-lean, highly efficient supply chain model kept prices low by keeping low on-hand stock, relying on accurate forecasting and delivering small batches reliably. When no disruptions occur, “just-in-time” logistics give everyone what they want: the products they order fast and at a competitive price.
But when disruption occurs, the entire system can collapse. Shutting down ports in China leads to backed-up freight, which leads to empty shelves in Europe. Destroyed Ukrainian grain in the Black Sea leads to feed shortages, sending the price of food through the roof. A stuck tanker in the Suez Canal ended up costing the world economy more than $9 billion a day.
Companies can’t be expected to predict the shutdown of entire ports, but they must prepare to react to volatility around the globe with agility.
Here’s how to do that.
Gain visibility and diversify proactively.
To prepare for future unknowns, your business needs to have a clear understanding of its supply chain, logistics, inventory, customers, demand and revenue. Mapping out the landscape of your supply chain will let you see potential chokepoints and vulnerabilities. Where are you single-sourced? Where is your transportation vulnerable? Do any customers or territories drive outsized revenue? What channel is the most profitable?
Achieving real-time visibility during stable times brings clarity. Clarity brings confidence. Clear-eyed and collected, you can now plan. Proactively take steps to identify alternate vendors to guard against future chaos. Cultivate diverse revenue channels to hedge against downturns that affect a single territory. If 45% of your business comes from one country and that country suddenly implements, let’s say, a 20% tariff across the board, you’re going to feel the pinch. Better to diversify your revenue in stable times than to scramble when others are also in a panic.
When a crisis hits, get a clear picture and give a clear picture.
When disaster strikes, you need to immediately understand how it impacts your organization and customers. Is this a short-term challenge or a long-term disruption? A hurricane that knocks out oil refineries in the Gulf of Mexico is far different than a global pandemic that shuts down ports.
During black swan events, the competition for supplies and payment is high. Protect your ability to conduct business by shoring up revenue and supply channels. This means rating your buyers and suppliers. Who pays on time? Who owes you money? Who delays shipments? Who refunds inaccurate orders quickly?
With your buyers and suppliers rated, concentrate on settling accounts. This will give you the revenue you need to keep your business prosperous amid volatility.
In turn, you need to provide clarity to your buyers; they’ll want to know how their orders and pricing have been affected by a black swan event. One way you can provide this is through integrating an online commerce solution with your ERP in real time. Tools that allow buyers to see automated pricing, stock levels and order updates can give them a clear picture of how their orders have been impacted. (Full disclosure: A number of companies, my own included, provide this type of tool.)
Adapt with purpose.
When disaster strikes, people and businesses don’t always think clearly. Emotions run high, and panic pushes people to make rash decisions. Don’t panic and make an emotional decision that will cause further problems.
Instead, make a decision based on the visibility and mapping you have already completed. If your primary supplier has been impacted, move to the secondary supplier that you have already identified. Informed decisions like these can only be made with quality information—information you need to have gained ahead of time. Make sure you have a clear picture first; then, adapt to new circumstances.
Don’t overextend.
In stable times, it’s all too easy to forget that volatility will eventually rear its head again. Businesses get lulled into a false sense of security, and the temptation to overextend grows stronger. Businesses overhire and reduce supply chain resiliency in favor of profit.
Then, of course, disaster strikes, and businesses scramble to adjust.
Businesses need to avoid the temptation to overextend like this. Be cautious but prudent when expanding head count or business ventures, knowing that disruption can occur at any time.
Prepare for the next black swan to hatch.
It’s hard to know when the next global upheaval could be growing. Maybe it’s an electrical storm that shuts down the entire grid. Maybe it’s a blocked tanker in the Panama Canal. Maybe it’s a pandemic that shuts down trade for a year. Or maybe it’s something completely novel—something none of us could possibly imagine.
The only thing we know for sure is that it will eventually happen. Now is the time to prepare. With the right solutions in place, you’ll be ready to adapt with agility when disaster strikes.
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